[Federal Register Volume 83, Number 167 (Tuesday, August 28, 2018)]
[Notices]
[Pages 43946-43949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18574]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83909; File No. SR-CBOE-2018-061]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 5.5A, Select Provisions of Options Listing Procedures Plan, 5.8, 
Long-Term Equity Option Series (LEAPS) and Rule 24.9, Terms of Index 
Option Contracts

August 22, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 20, 2018, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the Exchange. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rules 5.5A, 5.8, and 24.9.

(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 5.5A. Select Provisions of Options Listing Procedures Plan
    (a) No change.
    (b) The exercise price of each option series listed by the Exchange 
shall be fixed at a price per share which is reasonably close to the 
price of the underlying equity security, Exchange Traded Fund (``ETF'' 
and referred to as a ``Unit'' in Rule 5.3) or Trust Issued Receipt 
(``TIR'') at or about the time the Exchange determines to list such 
series. Additionally,
    (i) Exercise Price Range Limitations--Except as provided in 
subparagraphs (ii) through (iv) below, if the price of the underlying 
security is less than or equal to $20, the Exchange shall not list new 
option series with an exercise price more than 100% above or below the 
price of the underlying security. However, the foregoing restriction 
shall not prohibit the listing of at least three exercise prices per 
expiration month in an option class. Except as provided in Rule 
5.5(d)(4), if the price of the underlying security is greater than $20, 
the Exchange shall not list new option series with an exercise price 
more than 50% above or below the price of the underlying security.
    The price of the underlying security is measured by:
    (1) For intra-day add-on series and next-day series additions, the 
daily high and low of all prices reported by all national securities 
exchanges;
    (2) for new expiration months, the daily high and low of all prices 
reported by all national securities exchanges on the day the Exchange 
determines its preliminary notification of new series; [and]
    (3) for option series to be added as a result of pre-market 
trading, the most recent share price reported by all national 
securities exchanges between 7:45 a.m. and 8:30 a.m. (Chicago time)[.]; 
and
    (4) for option series to be added based on trading following 
regular trading hours, the most recent share price reported by all 
national securities exchanges between 3:15 p.m. and 5:00 p.m. (Chicago 
time).
    (ii)-(vi) No change.
* * * * *
Rule 5.8. Long-Term Equity Option Series (LEAPS)
    (a) No change.
    (b) [When a new equity LEAPS series is listed, such series will be 
opened for trading either when there is buying or selling interest, or 
40 minutes prior to the close, whichever occurs first. No quotations 
will be posted for such option series until they are opened for 
trading.
    (c)] With regard to the listing of new January LEAPS series on 
equity option classes, options on Exchange Traded Funds (``ETFs'' and 
referred to as ``Units'' in Rule 5.3), or options on Trust Issued 
Receipts (``TIRs''), the Exchange shall not add new LEAP series on a 
currently listed and traded option class earlier than the Monday prior 
to the September expiration (which is 28 months before the 
expiration)[:
    (i) Earlier than September (which is 28 months before the 
expiration), for an option class on the January expiration cycle;
    (ii) Earlier than October (which is 27 months before expiration), 
for an option class on the February expiration cycle; and
    (iii) Earlier than November (which is 26 months before expiration), 
for an option class on the March expiration cycle].
    Pursuant to the Options Listing Procedures Plan, exchanges that 
list and trade the same equity option class, ETF option class, or TIR 
option class are authorized to jointly determine and coordinate with 
the Clearing Corporation on the date of introduction of new LEAP series 
for that option class consistent with this paragraph ([c]b).
    ([d]c) The Exchange shall not list new LEAP series on equity option 
classes, options on ETFs, or options on TIRs in a new expiration year 
if the national average daily contract volume, excluding LEAP and FLEX 
series, for that option class during the preceding three calendar 
months is less than 1,000 contracts, unless the new LEAP series has an 
expiration year that has already been listed on another exchange for 
that option class. The preceding volume threshold does not apply during 
the first six months an equity option class, option on an ETF, or 
option on a TIR is listed on any exchange.
* * * * *
Rule 24.9. Terms of Index Option Contracts
    (a) No change.
    (b) Long-Term Index Option Series (``LEAPS'').
    (1) Notwithstanding the provisions of Paragraph (a)(2) above, the 
Exchange may list long-term index option series that expire from 12 to 
180 months from the date of issuance.
    (A) Index LEAPS may be based on either the full or reduced value of 
the underlying index.
    (B) There may be up to 10 expiration months, none further out than 
one-hundred eighty (180) months.
    [(B) When a new Index LEAPS series is listed, such series will be 
opened for trading either when there is buying or selling interest, or 
40 minutes prior to the close, whichever occurs first. No quotations 
will be posted for such

[[Page 43947]]

option series until they are opened for trading.]
    (2) No change.
    (c)-(e) No change.
    . . . Interpretations and Policies:
    .01-.14 No change.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend Rules 5.5A, 
5.8, and 24.9 to conform to recently approved changes to the Options 
Listing Procedures Plan (``OLPP'').\5\ The Exchange, which is one of 
the Participant Exchanges \6\ to the OLPP, currently has rules that are 
designed to incorporate the requirements of the OLPP. All Participant 
Exchanges have similar such (essentially uniform) rules to ensure 
consistency and compliance with the OLPP. The Exchange proposes to 
modify such rules to reflect the recent updates as described below.
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    \5\ See Securities Exchange Act Release Nos. 82235 (December 7, 
2017), 82 FR 58668 (December 13, 2017) (order approving the Fourth 
Amendment to the OLPP); 81893 (October 18, 2017), 82 FR 49249 
(``OLPP Notice'').
    \6\ In addition to the Exchange, the ``Participant Exchanges'' 
are: Box Options Exchange, LLC; Cboe BZX Exchange, Inc.; Cboe C2 
Exchange, Inc.; Cboe EDGX Exchange, Inc.; Miami International 
Securities Exchange, LLC; MIAX PEARL, LLC; Nasdaq BX, Inc.; Nasdaq 
GEMX, LLC; Nasdaq ISE, LLC; Nasdaq MRX, LLC; Nasdaq Options Market, 
LLC; Nasdaq PHLX, LLC; NYSE American, LLC; and NYSE Arca, Inc.
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Addition of Long-Term Equity Options (``LEAPS'')
    First, the OLPP has been amended to change the earliest date on 
which new January LEAPS on equity options, options on Exchange Traded 
Funds (``ETF''), or options on Trust Issued Receipts (``TIR'') may be 
added to a single date (from three separate months). As noted in the 
OLPP Notice, in the past, there were operational concerns related to 
adding new January LEAPs series for all options classes on which LEAPs 
were listed on a single trading day.\7\ And, the addition of new series 
in a pre-electronic trading environment was a manual process. To 
accommodate this, the addition of new January LEAPs series was spread 
across three months (September, October, and November). Today, however, 
these operational concerns related to January LEAPs have been 
alleviated as new series can be added in bulk electronically. The Plan 
Participants, including the Exchange, believe that moving the addition 
of new January LEAPs series to no earlier than the Monday prior to the 
September expiration would reduce marketplace confusion about available 
January LEAPs series. Where previously January LEAPs series for options 
classes on the February or March expiration cycles would not have been 
available as early as January LEAPs series for options classes on the 
January expiration cycle, under the proposed change, all January LEAPs 
series will be available concurrently. Accordingly, to conform to this 
change, the Exchange proposes to modify current Rule 5.8(c) to reflect 
that new January LEAPS series on equity options classes, options on 
ETFs, or options on TIRs, may not be added on a currently listed and 
traded option class earlier than the Monday prior to the September 
expiration (which is 28 months before the expiration).\8\
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    \7\ See OLPP Notice at 49249.
    \8\ See proposed Rule 5.8(b).
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Addition of Equity, ETF, and TIR Option Series After Regular Trading 
Hours
    Second, the OLPP has been amended to allow equity, ETF, and TIR 
option series to be added based on trading after regular trading hours 
(i.e., after-market). As noted in the OLPP Notice, the prior version of 
the OLPP did not allow for option series to be added based on trading 
following regular trading hours.\9\ As such, the Exchange Participants 
were are unable to add new option series that may result from trading 
following regular trading hours until the next morning, depending on 
the range of prices in pre-market trading, which is significant because 
events that occur after regular trading hours, such as earnings 
releases, often have an important impact on the price of an underlying 
security. In addition, there are operational difficulties for market 
participants throughout the industry adding series after system 
startup. To avoid the potential burden that would result from the 
inability to add series as a result of trading following regular 
trading hours, the OLPP was amended to allow an additional category by 
which the price of an underlying security may be measured. 
Specifically, to conform to the amended OLPP, the Exchange proposes to 
add subparagraph (b)(i)(4) to Rule 5.5A to provide that ``for option 
series to be added based on trading following regular trading hours,'' 
the price of the underlying security is measured by ``the most recent 
share price reported by all national securities exchanges between 3:15 
p.m. and 5:00 p.m. (Chicago time).'' \10\
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    \9\ See OLPP Notice at 49250.
    \10\ See proposed Rule 5.5A(b)(i)(4). The Exchange proposes to 
relocate ``and'' from subparagraph (2) to (3) to conform to the 
change. See proposed Rule 5.5A(b)(i)(2) and (3).
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Technical Changes
    The Exchange proposes to modify Rules to delete now obsolete 
operational language, which dates back to when LEAPs were first 
adopted. This language provides that when a new equity or index LEAPS 
series, as applicable, is listed, such series will be opened for 
trading either when there is buying or selling interest, or 40 minutes 
prior to the close, whichever occurs first. No quotations will be 
posted for such option series until they are opened for trading. The 
Exchange proposes to delete this language because when this language 
was adopted, LEAPs were not opened for trading until late in the 
trading day unless there was buying or selling interest.\11\ Today, 
however, technological improvements allow the Exchange to open all LEAP 
series at the same time as all other series in an option class.
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    \11\ See current Rules 5.8(b) and 24.9(b)(1)(B). The proposed 
rule change amends a cross-reference to current Rule 5.8(c) 
(proposed Rule 5.8(b)), and changes current Rule 5.8(d) to proposed 
Rule 5.8(c), to conform to the deletion of current Rule 5.8(b). See 
proposed Rule 5.8(b) and (c). The proposed rule change splits 
current Rule 24.9(b)(1)(A) into two provisions (proposed Rule 
24.9(b)(1)(A) and (B)) to separate two different rule provisions. 
See proposed Rule 24.9(b)(1).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the

[[Page 43948]]

Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\12\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \13\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \14\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ Id.
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    In particular, the proposed rule change, which conforms to the 
recently adopted provisions of the OLPP, as amended, allows the 
Exchange to continue to list extended far term option series that have 
been viewed as beneficial to traders, investors and public customers. 
Accordingly, the Exchange believes that the proposal is consistent with 
the Act because it will allow the Exchange to list all January 2021 
expiration series on the Monday prior to the September 2018 expiration. 
Moreover, this change would simplify the process for adding new January 
LEAP options series and reduce potential for investor confusion because 
all new January LEAP options would be made available beginning at the 
same time, consistent with the amended OLPP. The Exchange notes that 
this proposal does not propose any new provisions that have not already 
been approved by the Commission in the amended OLPP, but instead 
maintains series listing rules that conform to the amended OLPP.
    The proposal to permit series to be added based on after-market 
trading is designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and to remove impediments to 
and perfect the mechanisms of a free and open market and a national 
market system, by allowing the Exchange to make series available for 
trading with reduced operational difficulties. The Exchange notes that 
this proposed change, which is consistent with the amended OLPP should 
provide market participants with earlier notice regarding what options 
series will be available for trading the following day, and should help 
to enhance investors' ability to plan their options trading. The 
Exchange also believes that the proposed technical changes, including 
deleting obsolete language and reorganizing and consolidating the rule, 
promote just and equitable principles of trade, foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and remove impediments to and perfect the mechanism of a 
free and open market and a national market system.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Cboe Options does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Specifically, the Exchange 
believes that by conforming Exchange rules to the amended OLPP, the 
Exchange would promote regulatory clarity and consistency, thereby 
reducing burdens on the marketplace and facilitating investor 
protection. The Exchange believes that adopting rules, which it 
anticipates will likewise be adopted by Participant Exchanges, would 
allow for continued competition between Exchange market participants 
trading similar products as their counterparts on other exchanges, 
while at the same time allowing the Exchange to continue to compete for 
order flow with other exchanges in option issues.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \15\ and Rule 19b-4(f)(6) thereunder.\16\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\19\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission notes that 
the Exchange's proposal would conform the Exchange's rules to the 
amended OLPP, which the Commission previously approved.\20\ 
Accordingly, the Commission believes that the proposal raises no new or 
novel regulatory issues and waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission therefore waives the 30-day operative delay and 
designates the proposed rule change to be operative upon filing.\21\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ See OLPP Notice, supra note 5.
    \21\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \22\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \22\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and

[[Page 43949]]

arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2018-061 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2018-061. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-SR-CBOE-2018-061 and should be submitted 
on or before September 18, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18574 Filed 8-27-18; 8:45 am]
BILLING CODE 8011-01-P